After a prolonged bear market in ESG stocks, last year represented something of a turning point as the Dow Jones Sustainability World Index recorded a total return of 23.53%, comfortably outpacing the MSCI World Index.
Despite this more benign backdrop for ESG stocks, largely due to their clear growth bias, this has not necessarily translated into a rebounding in appetite for sustainable funds, which witnessed a sharp slowdown in demand globally last year.
According to research from Morningstar, this was felt most acutely in the US, where investors pulled $2.7bn from sustainable funds during the third quarter, amounting to a total of $14.2bn pulled over the past year, according to the most recent data.
Explanations for this dwindling interest include concerns about greenwashing and the political backlash idiosyncratic to the US, which has seen several pension funds pull back allocations to sustainable funds as a result.
Despite this tough backdrop, investors globally at least are still seeking to align their investment decisions with ESG considerations, buoyed not only by ethical concerns but also a belief that it will help generate superior returns over the long run.
Against this background, Darius McDermott, managing director at Chelsea Financial Services, chose the Janus Henderson – Horizon Global Sustainable Equity fund and the Liontrust Sustainable Future Global Growth fund for this week’s head-to-head.
| Janus Henderson | Liontrust | |
| Size | $1.17bn | $1.57bn |
| Inception | 2019 | 2001 |
| Managers | Hamish Chamberlayne, Aaron Scully | Peter Michaelis, Simon Clements, Chris Foster |
| Three-year cumulative return | 6.68% | 6.17% |
| Three-year annualised return | 2.45% | 2.1% |
| Three-year annualised alpha | 0.12 | 0.12 |
| Three-year annualised volatility | 16.64 | 17.7 |
| Three-year information ratio | 0.02 | -0.02 |
| FE Crown fund rating | *** | * |
| OCF (retail share class) | 1.07% | 0.85% |
Investment approach
The Janus Henderson fund focuses on companies that have a positive impact on the environment and society, employing a bottom-up approach to stock picking.
Its approach to sustainability comprises four pillars: positive impact, which leverages 10 sustainable development themes to identify opportunities; do no harm, which comprises strict avoidance criteria to companies that harm the environment; triple bottom-line framework, which focuses on how companies impact profit, people and the planet; and finally active portfolio management.
Using this proprietary model, Janus Henderson is then able to draw up a watchlist of around 120 companies before whittling down this number to 50 to 70 stocks.
Meanwhile, the Liontrust fund looks for key structural growth trends that will shape the global economy. Every investment has to meet four criteria, namely: thematic drivers, sustainable credentials, good fundamentals and attractive valuations.
The starting point is thematic drivers, which examines long-term structural growth trends such as the low-carbon transition.
Each company then undergoes a sustainability analysis, while the third and fourth stages look more at fundamentals and valuations, leaving the fund with around 40 to 60 stocks altogether.
Country allocation:
| Janus Henderson | Liontrust | ||
| US | 60.67% | US | 72.5% |
| Japan | 8.65% | Japan | 5% |
| France | 5.26% | Switzerland | 4% |
| Canada | 4.99% | UK | 3.9% |
| Netherlands | 3.81% | Denmark | 3.5% |
| UK | 3.71% | Netherlands | 3.2% |
| Germany | 3.24% | Germany | 2.8% |
| Ireland | 2.76% | Luxembourg | 2.1% |
| Hong Kong | 1.62% | Sweden | 2% |
| Italy | 0.95% |
Sector allocation:
| Janus Henderson | Liontrust | ||
| IT | 33.96% | IT | 27.3% |
| Industrials | 18.43% | Financials | 22.1% |
| Financials | 17.99% | Healthcare | 18.4% |
| Healthcare | 9% | Industrials | 11.7% |
| Consumer Discretionary | 4.99% | Consumer Discretionary | 6.7% |
| Utilities | 4.44% | Communication Services | 6.1% |
| Communication Services | 3.32% | Real Estate | 5.1% |
| Cash and Bonds | 3.18% | Materials | 1.9% |
| Real estate | 2.71% | ||
| Materials | 1.64% | ||
| Consumer Staples | 0.34% |
Performance
McDermott notes that both funds are quite similar in terms of style with each fund demonstrating a large and mega cap bias, while both funds are global in nature.
Despite these similarities, the bottom-up approach of each means that there are noticeable differences between the pair, with the Janus Henderson fund having a slightly lower exposure to US equities and a greater exposure to technology companies compared with the Liontrust fund.
“I think the best advert for the active nature of both portfolios is the lack of commonality in both of their top 10 holdings. For example, Janus Henderson holds Microsoft and Nvidia, while Liontrust holds Visa and Alphabet,” said McDermott.
Despite these similarities, both funds recorded similar returns in 2020 and 2021, although McDermott noted that the Liontrust fund fell slightly further in 2022, with the group calling it “the most challenging year since its inception”.
McDermott also notes that the fees are reasonable for both with the Liontrust fund having an ongoing charge of 0.85% compared with 1.07% for the Janus Henderson fund.
Discrete calendar year performance
| Fund | YTD* | 2022 | 2021 | 2020 | 2019 |
| Janus Henderson | -0.78% | 21.11% | -25.52% | 19.2% | 35.26% |
| Liontrust | -0.24% | 15.17% | -21.28% | 17.38% | 32.3% |
Manager review
McDermott describes both teams as “market leaders with huge resources in the sustainable arena”.
The Janus Henderson fund is led by Hamish Chamberlayne and Aaron Scully, supported by analysts Amarachi Seery, Jigar Pipalia and Suney Hindocha, although the team also taps into wider resources across a number of teams at the firm.
Chamberlayne is head of global sustainable equities at Janus Henderson having joined the investment manager as an investment analyst in 2011 from Gartmore.
Meanwhile, Scully is a Janus Henderson veteran having joined the firm in 2001 as a corporate financial analyst before working his way up to his current position as portfolio manager on the global sustainable equity team.
The Liontrust team is managed by veterans Peter Michaelis and Simon Clements, who are supported by Chris Foster after he was appointed co-manager in 2020. The trio are backed by a wider 17-strong team that manages the sustainable funds.
Michaelis, who heads up the 17-strong team, Clements and Foster all joined Liontrust in 2017 following the acquisition of Alliance Trust Investments.
Conclusion
McDermott notes that both funds are strong, long-term performers. He highlights that the Janus Henderson fund has bounced back well from its difficulties in 2022.
“The fund goes into significant depth across its themes and wider megatrends to tap into the move to a more sustainable world,” he said.
However, he describes the long-term performance of the Liontrust fund as “hard to ignore”.
“Having produced excellent returns in the past two decades by sticking to its rigorous approach to sustainability and the strength of company management, the result is an extremely flexible portfolio that can – and has – tapped into a number of emerging sustainable themes to deliver for its investors over time,” he said.
